Author Archives: Michael Lombardi

1,500 Applicants for 50 Jobs? The Reality in America Today

In New York last week, 1,500 people lined up for 50 apprenticeship positions as painters and decorators. These are union jobs, and only 500 applications are being accepted. Some hopefuls lined up in front of the District Council 9 office for days in extremely cold weather. If they are able to get the job, they will receive $17.20 an hour during the first year. After one year, they may get hired as a full-time employee. (Source: Eyewitness News, January 10, 2014.) This equates to about $37,000 per year considering one would work 40 hours a week.

Hold on a second: I thought the jobs market was strong in the U.S. economy? How come we are seeing such massive lines for a very small number of jobs?

What I just mentioned above is not an isolated event. I have reported other events like this in these pages before—a large number of people applying for very few jobs. It’s a fact that continues to be ignored: the U.S. jobs market remains bleak and the better-paying jobs are just not there.

In the entire year of 2013, the total non-farm payroll jobs market grew by 2.03 million jobs. But the majority of these positions were created in low-paying jobs.

What the Ice Cream Scooper Told Me in Venice

I’m blessed to be able to travel to Europe once or twice a year. I use the trips as an opportunity to see how the economies are faring over there. And I can tell you this first-hand: the economic situation in Europe is much worse than what we’re hearing from the mainstream media in the U.S. economy.

Here’s just one small story that paints the picture…

A couple of weeks back, while in Venice for four days, I walked into my favorite ice cream store for my daily fix of Italian ice cream. I’m chatty wherever I travel, as I want to get the locals talking so I learn what’s going on.

After engaging the store’s only employee in conversation (I’m fluent in Italian), the young man, who was between 25 and 30 years old and educated, told me how happy he was to have his job as an ice cream scooper at this particular location of a well-known chain of Italian ice cream stores. “Jobs in Italy are very hard to come by,” he told me.

A Rare Critical Voice

These days, central banks are on a very dangerous monetary policy path. Paper money printing has become the norm. Major central banks around the world are taking the same actions; they have learned the phrase "quantitative easing" well. Economy's soft; no problem! We'll just print more money so our currency falls in value and our exports rise! (If only it were that simple.)

Two central banks are at the forefront when it comes to implementing paper money printing: the U.S.'s Federal Reserve and the Bank of Japan. And it isn't a secret how poorly these two nations are faring despite their quantitative easing efforts.

In these pages, I have been very critical of quantitative easing.

With that said, to date, I have only heard one senior financial politician and one central bank head criticize the use of quantitative easing.

Canada's Finance Minister, Jim Flaherty, at a private dinner with his G20 equals this week, criticized the use of quantitative easing by the U.S. central bank. The following day, he said, "It's not good public policy." He said the U.S. should have never implemented quantitative easing, but "Now that they've done it, they should get out of it as quickly as they can." (Source: "'Not good public policy': Flaherty appears at odds with BoC, G20 as he criticizes U.S. quantitative easing," Financial Post, October 16, 2013.)

The governor of the central bank of Canada, Stephen Poloz, has a similar take. He said, "[we] certainly agree that quantitative easing is one of the last things we want to be in a position to have to use." (Source: Ibid.)

Finally, a finance minister and a central bank governor who have come out against quantitative easing! But no one is listening!

Sales Warnings

When retailers in the U.S. economy warn about their sales being in a slump or start to forecast rough roads ahead, it should be a warning to investors of an economic slowdown ahead. The logic behind this is very simple: Retailers in the U.S. economy show trends about consumer spending; if retailers are worried, it means consumer spending is in trouble.

One way to get an idea about bleak consumer spending is by looking at what happens during the peak buying seasons. In the most recent peak buying season, being the back-to-school shopping season, retailers in the U.S. economy were only able to lure in customers by slashing their already low prices.

The president of Retail Metrics (a company that provides estimates of same-store sales), Ken Perkin, said, “They [discounts] seem to be above the norm. That was emblematic of just the lack of demand for back-to-school.” (Source: “U.S. retailers rely on deep discounts to win back-to-school shoppers,” Reuters, September 5, 2013.)

Goldman Sachs Got Us on Gold; Why They Won’t Get Us on Stocks

This is a story of how the big banks pulled gold prices from under our feet, but why their plan for the stock market won’t pan out … When gold bullion prices went into semi-crash mode in late spring of this year, some stories written by financial analysts suggest big banks colluding together to bring gold bullion prices crashing down. If you remember, The Goldman Sachs Group, Inc. (NYSE/GS) came out with a report saying gold bullion prices would go down…and magically, they did!

At about the same time Goldman Sachs gave a “sell” recommendation on gold bullion, JPMorgan Chase & Co. (NYSE/JPM) was selling gold bullion on the paper market. The plunge in gold bullion prices started in April—but JPMorgan was selling gold since the beginning of the year. From January to April, the big bank’s house account had a net short position of 14,749 100-ounce COMEX gold contracts—or about 1.47 million ounces of gold bullion. (Source: “Year to Date Delivery Notices,” CME Clearing, August 19, 2013.)

I’ll be the first to admit it: the gold bullion price takedown that started in April sure looks and smells fishy.

Even Deep Discounts at These Stores Couldn’t Lure Customers in Last Month

The retail sector of the economy acts as a gauge of consumer spending. When the retail sector shows weakness, it means consumer spending isn’t as strong. If that becomes the case, economists assume the U.S. economy will perform poorly since consumer spending makes up about two-thirds of U.S. gross domestic product (GDP). As it stands, the retail sector is showing weakness and providing troubling news on consumer spending. According to Thomson Reuters, sales at retail stores open for at least a year increased a dismal 3.9% in July, below the analyst expectation of a rise of 4.4% (Source: Reuters, August 8, 2013). A well-known name in the retail sector, Gap Inc. (NYSE/GAP), registered an increase of one percent in July same-store sales from July 2012. Analysts were expecting an increase of 1.7%.

Costco Wholesale Corp. (NASDAQ/COST) said its July same-store sales increased four percent from July 2012; analysts were expecting a rise of 5.1%. The company also stated that consumers are shying away from buying big-ticket items such as electronics. In July, American Eagle Outfitters (NYSE/AEO) reported a decline of seven percent in its quarterly same-store sales, again compared to July 2012.What’s even more troubling…to get those sales in July going, the retail sector had to offer deep discounts to customers.

Amazon vs. Goldcorp: The Stock I Would Buy

Carlo and I went to high school together about 30 years ago. We remained friends after we left school even though we went our separate ways. Our common thread is that we are both entrepreneurs running our own businesses. After years of not seeing each other, last night we spent a couple of hours together discussing the economy and investing.

Carlo’s complaint last night, which is characteristic of many investors today, was that he worked hard all his life, watching what he spent and saved. “But I’m being punished for it,” he lamented. Why? Carlo looks at other investors who had less than him, but who borrowed heavily after the credit crisis of 2008 to either buy stocks or buy real estate. And they’ve done remarkably well.

Dismal U.S. Consumer Spending to Drag Us Back into Recession?

While the mainstream economists were quick to believe that the U.S. economy is growing as the key stock indices suggest, I stood by my opinion that it isn’t.

After the first estimates of gross domestic product (GDP) for the U.S. economy came out, a wave of optimism struck and stock markets rallied. It seemed as if everything was headed in the right direction.

Sadly, they were wrong.

In its third and final revision of GDP, the Bureau of Economic Analysis (BEA) reported that the U.S. economy grew at just 1.8% in the first quarter of 2013 from the fourth quarter of 2012—that is 25% lower than its previous (second) estimates, when the BEA said the U.S. economy grew 2.4%, and 28% lower from its first estimate of 2.5%. (Source: Bureau of Economic Analysis, June 26, 2013.)

The primary reasons behind the decline in GDP growth are that domestic consumer spending and exports from the U.S. declined.

Failed Projections or Just Another Government Lie? You Judge!

Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion.

But hold on a minute…

The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year!

Since the beginning of the U.S. government’s current fiscal year 2013, which began in October of last year, the government has posted a budget deficit in six out of the past eight months.

The Department of the Treasury just reported the U.S. government registered a budget deficit of $139 billion for the month of May. The federal government took in $197 billion and paid out $336 billion for the month. (Source: Department of the Treasury Financial Management Service, June 12, 2013.)

Comparing it to last year, May 2013’s budget deficit was 11% higher than that of May 2012.

Don’t Read This if You Thought the Economy Was Improving

The Bureau of Labor Statistics reported this morning that the U.S. unemployment rate is now 7.6% percent, with 175,000 new jobs created in May. At the same time, the Bureau revised its April numbers down, saying 149,000 jobs were created in April, and not the initial 165,000 it reported.

The unemployment situation in the U.S. in May was essentially the same as in April. (I wonder how the Federal Reserve looks at this. Does it say, “Wow, imagine what would have happened to the jobs market in May if you didn’t create $85.0 billion in new money during the month”?)

My readers know I don’t care much for the “official” unemployment numbers we get from the government statistics office. I believe the official rate doesn’t show the real picture, because it does not include people who have given up looking for work in the jobs market and people who want full-time jobs but can only find part-time jobs.

When we take into consideration these two important figures that the official numbers leave out, the underemployment rate, as it is referred to, was 13.8% in May—it’s been hovering around 14% for years now.

Most read in the last 20 days:

Effects of Monetary Pumping on the Real World
As long time readers know, we are looking at the economy through the lens of Austrian capital and monetary theory (see here for a backgrounder on capital theory and the production structure). In a nutshell: Monetary pumping falsifies interest rate signals by pushing gross market rates below the rate that reflects society-wide time preferences; this distorts relative prices in the economy and sets a boom into motion – which is characterized by...

“Literally On Fire”
This week brought forward more evidence that we are living in a fabricated world. The popular story-line presents a world of pure awesomeness. The common experience, however, falls grossly short.
There are many degrees of awesomeness, up to total awesomeness – which is where we are these days, in the age of total awesomeness, just a short skip away from the Nirvana era. What is Nirvana, you may wonder? We only know for sure that Nirvana is what...

A Useful Public Service
There are nooks and corners in every city where talk is cheap and scandal is honorable. The Alley, in Downtown Los Angeles, is a magical place where shrewd entrepreneurs, shameless salesmen, and downright hucksters coexist in symbiotic disharmony. Fakes, fugazis, and knock-offs galore, pack the roll-up storefronts with sparkle and shimmer.
The Alley in LA – in places such as this, consumers are as a rule well served by applying a little bit of...

Moribund Meandering
Earlier this week, the USD gold price was pushed rather unceremoniously off its perch above the $1300 level, where it had been comfortably ensconced all year after its usual seasonal rally around the turn of the year. For a while it seemed as though the $1,300 level may actually hold, but persistent US dollar strength nixed that idea. Previously many observers (too many?) expected gold to finally break out from its lengthy consolidation pattern, but evidently the...

A Movie We Have Seen Before – Repatriation Effect?
There was a sizable increase in the year-on-year growth rate of the true US money supply TMS-2 between February and March. Note that you would not notice this when looking at the official broad monetary aggregate M2, because the component of TMS-2 responsible for the jump is not included in M2. Let us begin by looking at a chart of the TMS-2 growth rate and its 12-month moving average.
The y/y growth rate of TMS-2...

Waiting for Permanent Backwardation
The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.
Lettuce hope this treasure is not cursed... but it probably is....

Shill Alarm
One well-known commentator this week opined about the US health care industry:
“...the system is designed the churn and burn... to push people through the clinics as quickly as possible.
The standard of care now is to prescribe some medication (usually antibiotics) and send people on their way without taking the time to conduct a comprehensive examination.”
From the annals of modern health care... [PT]
Nope. That is not the standard...

In Other Global Markets the “Turn-of-the-Month” Effect Generates Even Bigger Returns than in the US
The “turn-of-the-month” effect is one of the most fascinating stock market phenomena. It describes the fact that price gains primarily tend to occur around the turn of the month. By contrast, the rest of the time around the middle of the month is typically far less profitable for investors.
Good vs. bad seasonal timing... [PT]
The effect has been studied...

Tightening Credit Markets
Daylight extends a little further into the evening with each passing day. Moods ease. Contentment rises. These are some of the many delights the northern hemisphere has to offer this time of year. As summer approaches, and dispositions loosen, something less amiable is happening. Credit markets are tightening. The yield on the 10-Year Treasury note has exceeded 3.12 percent.
A change in pace: yields are actually going somewhere. There is...

Voting with their Feet
A couple of recent articles have once more made the case, at least implicitly, for political decentralization as the only viable path which will begin to solve the seemingly insurmountable political, economic, and social crises which the Western world now faces.
Fracture lines – tax and regulatory competition allows people to “vote with their feet” - and they certainly do. [PT]
In the last few months, over 3,000 millionaires have...

Gold Lending and Arbitrage
There was no rise in the purchasing power of gold this week. The price of gold fell $22, and that of silver $0.19. One question that comes up is why is the fundamental price so far above the market price? Starting in January, the fundamental price began to move up sharply, and the move sustained through the end of April.
1-month LIBOR (London Interbank Offered Rate – the rate at which banks lend euro-dollars to each other). LIBOR and GOFO...

A Truism that is Demonstrably True
Most people are probably aware of the adage “sell in May and go away”. This popular seasonal Wall Street truism implies that the market's performance is far worse in the six summer months than in the six winter months. Numerous studies have been undertaken in this context particularly with respect to US stock markets, and they confirm that the stock market on average exhibits relative weakness in the summer.
Look at the part we...